OLD DOMINION FREIGHT LINE, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations generally discusses our 2022 and 2021 results and year-to-year comparisons between 2022 and 2021. Discussions of our 2020 results and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , which was filed with theSecurities and Exchange Commission onFebruary 23, 2022 .
Overview
We are one of the largest North American less-than-truckload ("LTL") motor
carriers. We provide regional, inter-regional and national LTL services through
a single integrated, union-free organization. Our service offerings, which
include expedited transportation, are provided through an expansive network of
service centers located throughout the continental United States . Through
strategic alliances, we also provide LTL services throughout North America . In
addition to our core LTL services, we offer a range of value-added services
including container drayage, truckload brokerage and supply chain consulting.
More than 98% of our revenue has historically been derived from transporting LTL
shipments for our customers, whose demand for our services is generally tied to
industrial production and the overall health of the U.S. domestic economy.
In analyzing the components of our revenue, we monitor changes and trends in our
LTL volumes and LTL revenue per hundredweight. While LTL revenue per
hundredweight is a yield measurement, it is also a commonly-used indicator for
general pricing trends in the LTL industry. This yield metric is not a true
measure of price, however, as it can be influenced by many other factors, such
as changes in fuel surcharges, weight per shipment and length of haul. As a
result, changes in revenue per hundredweight do not necessarily indicate actual
changes in underlying base rates. LTL revenue per hundredweight and the key
factors that can impact this metric are described in more detail below:
•
LTL Revenue Per Hundredweight - Our LTL transportation services are generally priced based on weight, commodity, and distance. This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by theNational Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense, heavy freight. Fuel surcharges, accessorial charges, revenue adjustments and revenue for undelivered freight are included in this measurement. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy; however, we believe including it in our revenue per hundredweight metrics results in a more accurate representation of the underlying changes in our yields by matching total billed revenue with the corresponding weight of those shipments.
•
LTL Weight Per Shipment - Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers' products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight.
•
Average Length of Haul - We consider lengths of haul less than 500 miles to be regional traffic, lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic, and lengths of haul in excess of 1,000 miles to be national traffic. This metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics, and also allows for comparison with other transportation providers serving specific markets. By analyzing this metric, we can determine the success and growth potential of our service products in these markets. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight.
•
LTL Revenue Per Shipment - This measurement is primarily determined by the three
metrics listed above and is used in conjunction with the number of LTL shipments
we receive to evaluate LTL revenue.
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Our primary revenue focus is to increase density, which is shipment and tonnage
growth within our existing infrastructure. Increases in density allow us to
maximize our asset utilization and labor productivity, which we measure over
many different functional areas of our operations including linehaul load
factor, pickup and delivery stops per hour, P&D shipments per hour, platform
pounds handled per hour and platform shipments per hour. In addition to our
focus on density and operating efficiencies, it is critical for us to obtain an
appropriate yield, which is measured as revenue per hundredweight, on the
shipments we handle to offset our cost inflation and support our ongoing
investments in capacity and technology. We regularly monitor the components of
our pricing, including base freight rates, accessorial charges and fuel
surcharges. The fuel surcharge is generally designed to offset fluctuations in
the cost of our petroleum-based products and is indexed to diesel fuel prices
published by the U.S. Department of Energy , which reset each week. We believe
our yield management process focused on individual account profitability, and
ongoing improvements in operating efficiencies, are both key components of our
ability to produce profitable growth.
Our primary cost elements are direct wages and benefits associated with the
movement of freight, operating supplies and expenses, which include diesel fuel,
and depreciation of our equipment fleet and service center facilities. We gauge
our overall success in managing costs by monitoring our operating ratio, a
measure of profitability calculated by dividing total operating expenses by
revenue, which also allows for industry-wide comparisons with our competition.
We regularly upgrade our technological capabilities to improve our customer
service and lower our operating costs. Our technology provides our customers
with visibility of their shipments throughout our network, increases the
productivity of our workforce, and provides key metrics that we use to monitor
and enhance our processes.
Results of Operations
The following table sets forth, for the years indicated, expenses and other items as a percentage of revenue from operations:
2022 2021
Revenue from operations 100.0 % 100.0 %
Operating expenses: Salaries, wages and benefits 43.4 47.0 Operating supplies and expenses 13.6 10.8 General supplies and expenses 2.6 2.6 Operating taxes and licenses 2.3 2.5 Insurance and claims
0.9 1.0
Communication and utilities 0.6 0.7
Depreciation and amortization 4.5 4.9 Purchased transportation
2.5 3.5
Miscellaneous expenses, net 0.2 0.5
Total operating expenses 70.6 73.5
Operating income 29.4 26.5
Interest (income) expense, net (0.1 ) 0.0
Other expense, net 0.1 0.1
Income before income taxes 29.4 26.4
Provision for income taxes 7.4 6.7
Net income 22.0 % 19.7 %
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Key financial and operating metrics for 2022 and 2021 are presented below:
2022 2021 Change % Change
Work days 253 252 1 0.4
Revenue (in thousands) $ 6,260,077 $ 5,256,328 $ 1,003,749 19.1
Operating ratio 70.6 % 73.5 %
Net income (in thousands) $ 1,377,159 $ 1,034,375 $ 342,784 33.1
Diluted earnings per share $ 12.18 $ 8.89 $ 3.29 37.0
LTL tons (in thousands) 10,211 10,119 92 0.9
LTL tonnage per day 40,359 40,153 206 0.5
LTL shipments (in thousands) 12,989 12,880 109 0.8
LTL shipments per day 51,341 51,111 230 0.5
LTL weight per shipment (lbs.) 1,572 1,571 1 0.1
LTL revenue per hundredweight $ 30.24 $ 25.59 $ 4.65 18.2
LTL revenue per shipment $ 475.45 $ 402.01 $ 73.44 18.3
LTL revenue per intercity mile $ 8.28 $ 7.32 $ 0.96 13.1
LTL intercity miles (in thousands) 746,028 707,611 38,417 5.4
Average length of haul (miles) 934 935 (1 ) (0.1 )
Our financial results for 2022 included double-digit growth in our revenue, net income and earnings per diluted share. The 19.1% increase in revenue to$6.3 billion was due primarily to the increase in LTL revenue per hundredweight as LTL tons increased 0.9%. The increase in revenue and our disciplined control of our operating costs contributed to a 290 basis-point improvement in our operating ratio to 70.6% for 2022 as compared to 73.5% for 2021. As a result, net income and earnings per diluted share increased by 33.1% and 37.0%, respectively, in 2022 as compared to 2021.
Revenue
Revenue increased$1.0 billion , or 19.1%, in 2022 compared to 2021, due to an increase in LTL revenue per hundredweight and a slight increase in LTL tonnage. Our LTL revenue per hundredweight increased 18.2% in 2022 compared to 2021. This increase reflects the impact of higher fuel surcharges associated with the significant increase in diesel fuel prices as well as the ongoing commitment to our long-term yield management strategy. Excluding fuel surcharges, LTL revenue per hundredweight increased 8.5% in 2022 as compared to 2021. We believe our focus on obtaining an appropriate yield is necessary to offset rising operating costs and also allows us to invest in opportunities that can improve the quality of our service and provide capacity for future growth.
Revenue per day increased 4.2% inJanuary 2023 compared to the same month last year. LTL tons per day decreased 7.8%, due to a 5.9% decrease in LTL shipments per day and a 2.0% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 13.1% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 8.6% as compared to the same month last year.
Operating Costs and Other Expenses
Salaries, wages, and benefits increased$248.9 million , or 10.1%, in 2022 as compared to 2021, due to a$188.5 million increase in the costs attributable to salaries and wages and a$60.4 million increase in employee benefit costs. The increase in salaries and wages was due primarily to increases in the average number of active full-time employees during the year. Our average number of active full-time employees increased 2,291, or 10.4%, during 2022 as compared to 2021 as we hired additional employees primarily during the first half of the year to balance our workforce with our customers' shipment trends and reduce our reliance on third-party purchased transportation. Salaries and wages also increased as a result of annual wage increases provided to our employees at the beginning of bothSeptember 2021 and 2022, as well as higher performance-based bonus compensation. Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 22.9% in 2022 compared to 25.1% in 2021. The improvements in our productive labor costs, as a percentage of revenue, reflect the leveraging effect of increases in our yield as well as our ongoing commitment to operating efficiently. Our productive labor costs as a percentage of revenue were also impacted by declines in our P&D shipments per hour and linehaul laden load average as we trained our new employees. Our other salaries and wages as a percent of revenue also decreased to 9.0% in 2022 as compared to 9.3% in 2021. 23 -------------------------------------------------------------------------------- The increase in the costs attributable to employee benefits of$60.4 million , or 9.1%, includes the impact of the increase in the number of full-time employees eligible for our benefits and increases in certain higher retirement benefits costs directly linked to our net income. In addition, our benefit costs were positively impacted by a reduction in accrued benefits expense attributable to the termination of an employment agreement during the third quarter of 2022. Our employee benefit costs as a percent of salaries and wages decreased to 36.2% in 2022 from 36.6% in 2021. Operating supplies and expenses increased$285.3 million , or 50.3%, in 2022 as compared to 2021, due primarily to an increase in our costs for diesel fuel used in our vehicles, as well as other petroleum-based products. Our diesel fuel costs, excluding fuel taxes, represent the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption. Our average cost per gallon of diesel fuel increased 68.2% in 2022 as compared to 2021. In addition, our gallons consumed increased 4.1% in 2022 as compared to 2021 year due to an increase in miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Our other operating supplies and expenses as a percent of revenue increased in 2022 as compared to the same periods of 2021, due to increases in equipment repair and maintenance costs. Depreciation and amortization increased$16.2 million , or 6.2%, in 2022 as compared to 2021. The increases in depreciation and amortization costs were due primarily to the assets acquired as part of our 2021 and 2022 capital expenditure programs. We believe depreciation costs will increase in future periods based on our 2023 capital expenditure plan. While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives. Purchased transportation expense decreased$27.7 million , or 14.9%, in 2022 as compared to 2021. We utilize purchased transportation services from third-party transportation providers in our domestic linehaul network to supplement our equipment and our workforce when needed to support our growth initiatives and to maximize the efficient movement of LTL freight within our service center network. Our significant investments in workforce and equipment enabled us to reduce our use of purchased transportation beginning in the second quarter of 2022.
Our effective tax rate in 2022 was 25.2% as compared to 25.5% in 2021. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other non-deductible items.
Liquidity and Capital Resources
A summary of our cash flows is presented below:
(In thousands) 2022 2021 Cash and cash equivalents at beginning of year$ 462,564 $ 401,430 Cash flows provided by (used in): Operating activities 1,691,582 1,212,606 Investing activities (547,472 ) (455,288 ) Financing activities (1,420,362 ) (696,184 ) (Decrease) increase in cash and cash equivalents (276,252 ) 61,134 Cash and cash equivalents at end of year$ 186,312 $
462,564
The increase in our cash flows provided by operating activities during 2022 as compared to 2021 was primarily due to an increase in our income before income taxes of$452.9 million and fluctuations in certain working capital accounts. The increase in our cash flows used in investing activities during 2022 as compared to 2021 was primarily due to increases in property and equipment purchases under our capital expenditure plan, which was partially offset by the timing of purchases and maturities of short-term investments. Changes in our capital expenditure plans are more fully described below under "Capital Expenditures". The increase in our cash flows used in financing activities during 2022 as compared to 2021 was due primarily to higher repurchases of our common stock, as well as an increase in dividend payments to our shareholders. Our return of capital to shareholders is more fully described below under "Stock Repurchase Program" and "Dividends to Shareholders". We have five primary sources of available liquidity: cash flows from operations, our existing cash and cash equivalents, short-term investments, available borrowings under our second amended and restated credit agreement withWells Fargo Bank, National Association serving as administrative agent for the lenders, which we entered into onNovember 21, 2019 (the "Credit Agreement"), 24 -------------------------------------------------------------------------------- and our Note Purchase and Private Shelf Agreement withPGIM, Inc. ("Prudential") and certain affiliates and managed accounts of Prudential, which we entered into onMay 4, 2020 (the "Note Agreement"). Our Credit Agreement and Note Agreement are described in more detail below under "Financing Arrangements." We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed. Capital Expenditures
The table below sets forth our net capital expenditures for property and
equipment, including those obtained through noncash transactions, for the years
ended
Year Ended December 31,
(In thousands) 2022 2021
Land and structures $ 299,529 $ 252,155
Tractors 148,719 130,772
Trailers 216,697 140,595
Technology 33,783 17,139Other equipment and assets 68,920 25,450 Less: Proceeds from sales (22,096 ) (19,548 ) Total
$ 745,552 $ 546,563 Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand. We historically spend 10% to 15% of our revenue on capital expenditures each year. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth. We currently estimate capital expenditures will be approximately$800 million for the year endingDecember 31, 2023 . Approximately$300 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately$400 million is allocated for the purchase of tractors and trailers; and approximately$100 million is allocated for investments in technology and other assets. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents, short-term investments and, if needed, borrowings available under our Credit Agreement or Note Agreement. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures for the next twelve months and in the longer term.
Stock Repurchase Program
OnMay 1, 2020 , we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of$700.0 million of our outstanding common stock (the "2020 Repurchase Program"). The 2020 Repurchase Program became effective upon the termination of our$350.0 million repurchase program onMay 29, 2020 . OnJuly 28, 2021 , we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of$2.0 billion of our outstanding common stock (the "2021 Repurchase Program"). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of the 2020 Repurchase Program inJanuary 2022 . Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.
As of
Dividends to Shareholders
Our Board of Directors declared a cash dividend of
OnFebruary 1, 2023 , we announced that our Board of Directors had declared a cash dividend of$0.40 per share of our common stock. The dividend is payable onMarch 15, 2023 to shareholders of record at the close of business onMarch 1, 2023 . Although we intend to pay a quarterly cash dividend on our common stock for the foreseeable future, the declaration and amount of any future dividend is subject to approval by our Board of Directors, and is restricted by applicable state law limitations on distributions to 25 -------------------------------------------------------------------------------- shareholders as well as certain covenants under our Credit Agreement and Note Agreement. We anticipate that any future quarterly cash dividends will be funded through cash flows from operations, our existing cash and cash equivalents, short-term investments, and, if needed, borrowings under our Credit Agreement or Note Agreement. Financing Agreements Note Agreement The Note Agreement, which is uncommitted and subject to Prudential's sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to$350.0 million throughMay 4, 2023 . Pursuant to the Note Agreement, we issued$100.0 million aggregate principal amount of senior promissory notes (the "Series B Notes") onMay 4, 2020 . Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement. The Series B Notes bear an annual interest rate of 3.10% and mature onMay 4, 2027 , unless prepaid. Principal payments are required annually beginning onMay 4, 2023 in equal installments of$20.0 million throughMay 4, 2027 . The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement. Credit Agreement The Credit Agreement provides for a five-year,$250.0 million senior unsecured revolving line of credit and a$150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of$400.0 million . Of the$250.0 million line of credit commitments under the Credit Agreement, up to$100.0 million may be used for letters of credit. At our option, borrowings under the Credit Agreement bear interest at either: (i) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000% to 1.375%; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%. Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.100% to 0.175% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.
For periods covered under the Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.000% and commitment fees were 0.100%.
The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below:
December 31,
(In thousands) 2022 2021
Facility limit $ 250,000 $ 250,000
Line of credit borrowings - -
Outstanding letters of credit (38,653 ) (39,169 )
Available borrowing capacity
General Debt Provisions
The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period endedDecember 31, 2022 . We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs. 26 -------------------------------------------------------------------------------- The interest rate is fixed on the Note Agreement. Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.
Contractual Obligations
The following table summarizes our significant contractual obligations as ofDecember 31, 2022 : Payments due by period Contractual Obligations (1) Less than More than (In thousands) Total 1 year 1-3 years 3-5 years 5 years Series B Notes$ 107,254 $ 22,691 $ 43,522 $ 41,041 $ - Operating lease obligations (2) 120,300 21,243 29,234 25,262 44,561 Purchase obligations and Other 186,680 160,776 22,151 3,753 Total$ 414,234 $ 204,710 $ 94,907 $ 70,056 $ 44,561 (1) Contractual obligations include principal and interest on our Series B Notes; leases consisting primarily of real estate and automotive leases; and purchase obligations relating to non-cancellable purchase orders for (i) equipment scheduled for delivery in 2023, and (ii) information technology agreements.
(2)
Lease payments include lease extensions that are reasonably certain to be exercised.
Critical Accounting Policies
In preparing our financial statements, we apply the following critical accounting policies that we believe affect our judgments and estimates of amounts recorded in certain assets, liabilities, revenue and expenses. These critical accounting policies, which are those that have, or are reasonably likely to have, a material impact on our financial condition or results of operations, are further described in Note 1 of the Notes to the Financial Statements included in Item 8 of this report.
Revenue Recognition
Our revenue is generated from providing transportation and related services to
customers in accordance with the bill of lading ("BOL") contract, our general
tariff provisions and contractual agreements. Generally, our performance
obligations begin when we receive a BOL from a customer and are satisfied when
we complete the delivery of a shipment and related services. We recognize
revenue for our performance obligations under our customer contracts over time,
as our customers receive the benefits of our services in accordance with
Accounting Standards Update ("ASU") 2014-09. With respect to services not
completed at the end of a reporting period, we use a percentage of completion
method to allocate the appropriate revenue to each separate reporting period.
Under this method, we develop a factor for each uncompleted shipment by dividing
the actual number of days in transit at the end of a reporting period by that
shipment's standard delivery time schedule. This factor is applied to the total
revenue for that shipment and revenue is allocated between reporting periods
accordingly. A hypothetical change of 10% in our percentage of completion
estimate would not have a material effect on our recorded revenue.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated economic lives. We use historical experience, certain assumptions and estimates in determining the economic life of each asset. When indicators of impairment exist, we review property and equipment for impairment due to changes in operational and market conditions, and we adjust the carrying value and economic life of any impaired asset as appropriate. Estimated economic lives for structures are 7 to 30 years, revenue equipment is 4 to 15 years, other equipment is 2 to 20 years, and leasehold improvements are the lesser of the economic life of the leasehold improvement or the remaining life of the lease. The use of different assumptions, estimates or significant changes in the resale market for our equipment could result in material changes in the carrying value and related depreciation of our assets. Depreciation expense in 2022 totaled$275.6 million . A hypothetical change of 1% in the estimated useful lives of all depreciable assets would not have a material impact on our financial results. 27 --------------------------------------------------------------------------------
Claims and Insurance Accruals
Claims and insurance accruals reflect the estimated cost of various claims,
including those related to bodily injury/property damage ("BIPD") and workers'
compensation. All related costs associated with BIPD claims are charged to
insurance and claims expense, and all related costs associated with workers'
compensation claims are charged to employee benefits expense.
Insurers providing excess coverage above a company's self-insured retention or
deductible levels typically adjust their premiums to cover insured losses and
for other market factors. As a result, we periodically evaluate our self-insured
retention and deductible levels to determine the most cost-efficient balance
between our exposure and excess coverage.
In establishing accruals for claims and expenses, we evaluate and monitor each
claim individually, and we use factors such as historical claims development
experience, known trends and third-party actuarial estimates to determine the
appropriate reserves for potential liabilities. We believe the assumptions and
methods used to estimate these liabilities are reasonable; however, any changes
in the severity or number of reported claims, significant changes in medical
costs and regulatory changes affecting the administration of our plans could
significantly impact the determination of appropriate reserves in future
periods. Our accrued liability for insurance, BIPD claims, and workers'
compensation claims totaled $129.6 million and $126.4 million at December 31,
2022 and 2021, respectively. Claims and insurance accruals are discussed further
in Note 1 of the Notes to the Financial Statements included in Item 8 of this
report.
Inflation
Most of our expenses are affected by inflation, which typically results in
increased operating costs. In response to fluctuations in the cost of petroleum
products, particularly diesel fuel, we generally include a fuel surcharge in our
tariffs and contractual agreements. The fuel surcharge is designed to offset the
cost of diesel fuel above a base price and fluctuates as diesel fuel prices
change from the base, which is generally indexed to the DOE's published fuel
prices that reset each week. Volatility in the price of diesel fuel has impacted
our business, as described in this report. However, we do not believe inflation
has had a material adverse effect on our results of operations for any of the
past three years.
Related Party Transactions
Family Relationships
In August 2022 , we entered into an agreement with David S. Congdon , Executive
Chairman of our Board of Directors, to terminate the employment agreement
between the Company and Mr. Congdon . Following termination of the employment
agreement, Mr. Congdon remained an executive officer of the Company and
continued to serve as Executive Chairman of our Board of Directors. John R.
Congdon , Jr., a member of our Board of Directors, is the cousin of David S.
Congdon . We regularly disclose the amount of compensation that we pay to these
individuals, as well as the compensation paid to any of their family members
employed by us that from time to time may require disclosure, in the proxy
statement for our Annual Meeting of Shareholders.
Audit Committee Approval
The Audit Committee of our Board of Directors reviews and approves all related person transactions in accordance with our Related Person Transactions Policy.
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